Marathon Electric India Pvt. Ltd., Haryana V. DCIT, Faridabad

ITA 1576/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6351 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 14-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1576/DEL/2014 ASSESSMENT YEAR : 2005-06 MARATHON ELECTRIC INDIA PVT. LTD., (FORMERLY KNOWN AS GE MOTORS INDIA PVT. LTD.), SECTOR 11, MODEL TOWN, FARIDABAD, HARYANA. PAN: AAACG5525H VS. DCIT, CIRCLE-1, FARIDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA, ADVOCATE DEPARTMENT BY : SHRI RAJESH KUMAR, SR. DR DATE OF HEARING : 22.03.2017 DATE OF PRONOUNCEMENT : 22.03.2017 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 09.01.2014 CONFIRMING THE PENALTY OF RS.39,80,878/- ITA NO.1576 /DEL/2014 2 IMPOSED BY THE ASSESSING OFFICER U/S 271(1)(C) OF T HE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATIO N TO THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE PURCHASED CERTAIN ASSETS IN AN EARLIER YEAR BY TAKING LOAN FR OM ITS PARENT COMPANY, NAMELY, GEC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEES PARENT COMPANY WAIVED LOAN AMOUNTING TO RS.3,41,11, 391/-, WHICH WAS REDUCED BY THE ASSESSEE FROM GROSS BLOCK OF FIXED A SSETS IN THE SCHEDULE OF THE FIXED ASSETS UNDER COMPANIES ACT. CONSEQUEN TIAL ADJUSTMENT TO DEPRECIATION AS PER BOOKS OF ACCOUNT WAS ALSO MADE. THE FACTS OF LOAN WAIVER AND REDUCTION IN DEPRECIATION UNDER THE COMP ANIES ACT WERE ALSO RECORDED IN NOTES TO THE ANNUAL ACCOUNTS. HOWEVER, SUCH WAIVER OF LOAN WAS NOT REDUCED FROM THE VALUE OF BLOCK OF ASS ETS IN THE SCHEDULE OF FIXED ASSETS FOR THE PURPOSES OF CALCULATING DEP RECIATION UNDER THE ACT. THE ASSESSING OFFICER OPINED THAT THE ASSESSE E OUGHT TO HAVE REDUCED THE AMOUNT OF LOAN WAIVED BY ITS PARENT COM PANY FROM BLOCK OF FIXED ASSETS FOR THE PURPOSES OF DEPRECIATION UNDER THE ACT AS WELL. THAT ITA NO.1576 /DEL/2014 3 IS HOW, HE DISALLOWED DEPRECIATION AMOUNTING TO RS. 85,27,847/- ON THE PROPORTIONATE AMOUNT OF LOAN WAIVED BY THE PARENT C OMPANY. THEREAFTER, THE ASSESSING OFFICER IMPOSED PENALTY O N THIS AMOUNT, WHICH CAME TO BE SUSTAINED BY THE LD. CIT(A). 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FAC T THAT THE PARENT COMPANY OF THE ASSESSEE WAIVED LOAN TO THE TUNE OF RS.3.41 CRORE DURING THE YEAR WHICH THE ASSESSEE METICULOUSLY REDUCED FR OM THE GROSS VALUE OF ASSETS FROM THE SCHEDULE OF FIXED ASSETS UNDER T HE COMPANIES ACT. THIS FACT WAS DISCLOSED IN SCHEDULE 12 TO THE ANNUA L ACCOUNTS VIZ., SIGNIFICANT ACCOUNTING POLICY AND NOTES TO THE ACCO UNTS. A COPY OF SUCH NOTE IS AVAILABLE AT PAGE 38 OF THE PAPER BOOK , AS PER WHICH THE DISCLOSURE WAS MADE ABOUT ALL THE NECESSARY FACTS C ONCERNING THE WAIVER OF LOAN AND REDUCTION OF THIS AMOUNT FROM GROSS BLO CK OF FIXED ASSETS. THE ASSESSEE DID NOT REDUCE THIS AMOUNT FROM THE VA LUE OF BLOCK OF ASSETS IN THE SCHEDULE OF FIXED ASSETS FOR THE PURP OSES OF DEPRECIATION UNDER THE ACT. THIS WAS DONE PRIMARILY ON THE BASI S OF THE JUDGMENT OF ITA NO.1576 /DEL/2014 4 THE HON'BLE KERALA HIGH COURT IN CIT VS. COCHIN COMPANY (P) LTD. (1990) 52 TAXMANN 178 (KER). AS PER THIS JUDGMENT, THE ACTUAL COST OF MACHINERY WAS NOT TO BE REDUCED BY THE AMOUNT OF LI ABILITY REMITTED OR WAIVED. WE FIND THAT SIMILAR VIEW HAS BEEN TAKEN B Y THE BANGALORE BENCH OF THE TRIBUNAL IN AKZO NOBEL COATINGS INDIA PVT. LTD. VS. DCIT (2012) 28 TAXMANN.COM 82 (BANGALORE) IN WHICH IT HAS BEEN HELD THAT THE CONCEPT OF ACTUAL COST IS DEFINED U/S 43(1) W HICH IS RELEVANT ONLY FOR THE YEAR OF PURCHASE OF ASSETS; AND THE WAIVER OF LOAN IN A LATER YEAR CANNOT BE COVERED U/S 43(6)(C). IT IS ON THIS INTE RPRETATION OF THE RELEVANT PROVISIONS THAT THE TRIBUNAL DELETED THE DISALLOWAN CE OF DEPRECIATION MADE BY THE AUTHORITIES ON THE AMOUNT OF LOAN WAIVE D. THE FACTS OF THE INSTANT CASE ARE ON ALL FOURS WITH THOSE CONSIDERED AND DECIDED BY THE BANGALORE BENCH OF THE TRIBUNAL. ON THE STRENGTH OF CERTAIN DECISIONS, AS DISCUSSED ABOVE, AN OPINION WAS FORMED BY THE AS SESSEE THAT THE AMOUNT OF LOAN WAIVED WAS NOT TO BE REDUCED FOR THE PURPOSES OF CALCULATING DEPRECIATION UNDER THE ACT. THIS WAS A POSSIBLE VIEW TAKEN BY THE ASSESSEE AS SUPPORTED BY THE JUDGMENTS TAKEN NOTE OF ABOVE. ITA NO.1576 /DEL/2014 5 4. THE LD. DR EMPHATICALLY CONTENDED AND PRESSED FOR RECORDING HIS CONTENTION IN THE ORDER THAT WHEN AN INCORRECT CLAI M IS MADE BY THE ASSESSEE, WHICH IS ALSO IN ITS KNOWLEDGE, THEN PENA LTY MUST BE IMPOSED. WE FULLY AGREE WITH THIS CONTENTION. BUT THIS PROPO SITION CANNOT BE EXTENDED TO A CLAIM, WHICH MAY BE POSSIBLY ALLOWABL E. IN OTHER WORDS, DEBATABLE ISSUES ARE OUTSIDE THE KEN OF PENALTY PRO VISION. TO PUT IT SIMPLY, WHERE AN ISSUE IS DEBATABLE AND THE ASSESSE E ADOPTS A LEGALLY POSSIBLE VIEW WHICH IS EVENTUALLY UPSET BY THE AUTH ORITIES, NO PENALTY CAN BE IMPOSED WITH REFERENCE TO SUCH DISALLOWANCE. 5. IT IS SEEN THAT THE ASSESSEE MADE DUE DISCLOSU RE OF THE ACTUAL TRANSACTION OF WAIVER OF LOAN IN ITS ANNUAL ACCOUNT S AND NO INFORMATION WAS WITHHELD. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 322 ITR 15 8 (SC) HAS HELD THAT SIMPLY FOR THE REASON THAT THE ASSESSING OFFICER DI D NOT FIND THE CLAIM OF THE ASSESSEE TO BE SUSTAINABLE IN LAW UP TO A CERTA IN EXTENT, CANNOT BE A CASE FOR PENALTY U/S.271(1)(C), MORE SO, WHEN THE PARTICULARS FURNISHED BY THE ASSESSEE WERE NOT INACCURATE. IN VIEW OF TH E FOREGOING ITA NO.1576 /DEL/2014 6 DISCUSSION, WE ARE SATISFIED THAT THE LD. CIT(A) WA S NOT JUSTIFIED IN SUSTAINING THE PENALTY U/S 271(1)(C) IN RESPECT OF THE DISALLOWANCE OF DEPRECIATION. WE, ERGO, ORDER TO DELETE THE SAME. 6. THE ONLY OTHER AMOUNT ON WHICH PENALTY HAS BEEN IMPOSED IS DISALLOWANCE OF RS.2,35,100/-, BEING SOFTWARE EXPEN SES. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE PURCHASED APPLICATION SOFTWARE FROM ORACLE TO CARRY OUT ITS BUSINESS ACTIVITIES IN A MORE EFFICIENT MANNER AND CLAIMED IT AS REVENUE EXPENDITURE. THE A SSESSING OFFICER TREATED THIS AMOUNT AS CAPITAL IN NATURE. THEREAFT ER, PENALTY WAS IMPOSED WHICH STOOD AFFIRMED IN THE FIRST APPEAL. 7. HERE AGAIN, WE FIND THAT THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN IMPOSING AND CONFIRMING PENALTY IN RESPECT OF SO FTWARE EXPENSES INCURRED BY THE ASSESSEE. THE HONBLE DELHI HIGH C OURT IN CIT VS. GE CAPITAL SERVICES LTD. (2008) 300 ITR 420 (DEL) , UPHELD THE VIEW TAKEN BY THE TRIBUNAL IN TREATING THE EXPENSES INCURRED O N PURCHASE OF COMPUTER SOFTWARE AS REVENUE EXPENDITURE. THERE IS A THIN LINE BETWEEN SOFTWARE EXPENSES FALLING ON THE REVENUE OR THE CAP ITAL SIDE. TAKING INTO ITA NO.1576 /DEL/2014 7 CONSIDERATION THE ENTIRETY OF FACTS AND CIRCUMSTANC ES OF THE INSTANT CASE, WE ARE SATISFIED THAT THE VIEW TAKEN BY THE ASSESSE E IN TREATING SOFTWARE EXPENSES AS REVENUE, CANNOT CALL FOR ANY IMPOSITION OF PENALTY. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS SCOR E AS WELL. 8. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.03.201 7. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 22 ND MARCH, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.